CONGRESS

SUPERVISION AND OVERSIGHT
a sweep of net worth that exceeded a “Capital Reserve
Amount,” which was established at $3.0 billion in 2013
with mandated declines of $600 million each subsequent
year. Accordingly, the capital reserve for 2016 will be $1.2
billion and decline to zero by January 1, 2018.
Reductions in income from the Enterprise’s shrinking
mortgage investment portfolio and diminished income
from reserve releases and legal settlements, combined with
mark-to-market volatility from the Enterprise’s derivatives
portfolio, increase the likelihood of negative net worth in
future quarters. Moreover, initiatives such as credit risk
transfer transactions confer risk management benefits but
impose costs that will reduce Enterprise earnings.
Fannie Mae (Federal National
Mortgage Association)
Financial Performance – Fannie Mae’s net income of
$11.0 billion for 2015 represents a decline of $3.2 billion,
or 23 percent, from net income of $14.2 billion in 2014.
The 2015 earnings included a reversal from recognizing
credit-related income to credit-related expense. Offsetting
this increase in credit-related expense was a substantial
decrease in fair value losses attributable to derivative
instruments compared to 2014 due to interest rates
increasing in 2015. Additionally, 2015 earnings were not
aided as they were in 2014 by substantial non-recurring
income from legal settlements relating to private-label
MBS. The Enterprise’s financial performance will continue
to reflect the decline in net interest income from the
retained mortgage portfolio as the Enterprise complies
with the PSPA requirement to reduce the volume of mortgage-related
assets on its balance sheet. Further, given
the large size of the Enterprise’s portfolio, small changes
in home prices and interest rates could have a significant
impact on its financial performance.
Fannie Mae reported positive net worth of $4.1 billion at
the end of 2015, $2.9 billion of which represented a dividend
obligation to the Treasury Department that was paid
on March 31, 2016. Fannie Mae has not made a draw on
the Treasury since 2012. At year-end 2015, Fannie Mae’s
cumulative draws from the Treasury under the terms of
the PSPA totaled $116.1 billion. In 2015, Fannie Mae
made cumulative dividend payments to the Treasury
Department totaling $10.3 billion, representing the fourth
quarter of 2014 through the third quarter of 2015. As noted
above, the Enterprise’s dividend payments to the Treasury
Department do not reduce the outstanding amount drawn.
As of December 31, 2015, the amount of available funding
remaining under the PSPA was $117.6 billion, which would
be reduced in the event of a future draw.
Corporate Governance – During 2015, Fannie Mae
embarked upon a major initiative to overhaul its governance
structure and clarify authority and accountability
across the Enterprise. That effort resulted in significant
changes to the management-level committee structure and
delegations of authority, and efforts are currently underway
to revise and enhance policies and procedures to
conform to the new governance framework. During 2015,
Fannie Mae also made substantial progress in developing
a strategic plan, reducing expenses, and adopting an
enterprise-wide, third-party risk management framework.
Fannie Mae’s board of directors has supported and continues
to oversee those efforts.
These and other initiatives currently underway will require
a significant level of change in Fannie Mae’s organizational
structure, policies, processes, and systems. Until
this work is complete and sustainable results have been
achieved, the operating environment will be exposed to
heightened risk.
Credit Risk – In 2015, Fannie Mae continued making
progress strengthening credit risk management and
showed improvement in credit quality. The level of
problem assets continued to decline, but still remains at
elevated levels with delinquencies, foreclosed properties,
and restructured loans well above historical norms and
projected to remain at elevated levels in future years.
Fannie Mae continues to hold and manage a large portfolio
of real estate owned properties, and a large portion of
that inventory is unavailable for marketing or sale due to
legal restrictions, such as state judicial foreclosure requirements.
At the end of 2015, Fannie Mae had more than
267,000 seriously delinquent mortgages, approximately
30 percent of which were more than two years delinquent.
REPORT TO CONGRESS • 2015
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